Wheat Stirs an Unlikely Border War

U.S. and Canada wheat production stirs controversy

The United States and Canada tend to get along very well — but sometimes even the best of neighbors have disagreements. The wheat industry finds itself wrapped in controversy as farmers on both sides of the border struggle to buy varieties and sell their grain fairly.

"This issue has been around for a long time," says Vince Smith, an agricultural economics professor with Montana State University, who has been tracking the marketing squabbles and trade disputes between the two countries over the years.

Smith says an important change came last August, with the implementation of the Marketing Freedom for Grain Farmers Act in Canada. This Act changed the way Western Canadian wheat and barley farmers market their grain by removing the mandatory requirement to sell their crops through the Canadian Wheat Board (CWB). The CWB has been the sole buyer of Canadian wheat since 1935 — now, famers have more options when marketing their crops.

The resulting import/export implications are complex — "It’s not completely clear what the rules are," Smith says — but some of the new guidelines are spelled out in a FAQ on the following website: http://canada-usgrainandseedtrade.info.

Dismantling the CWB’s monopoly has not been a comprehensive solution, either. Grading inconsistencies between the U.S. and Canada are a concern for some farmers who want to market their crop in both countries, such as Montana wheat farmer Gordon Stoner.

"The problem going north right now is the Canadian varietal act," Stoner told the Billings Gazette. "To get a grade, wheat in Canada must be an approved variety. If it’s not, it has to be graded as [lower value] feed wheat."

Meantime, Smith says that although there are positive aspects of the CWB’s demise, he is also bracing some for potential unintended consequences of the change. As a matter of marketing policy, CWB restricted the range of varieties Canadian farmers could plant. One outcome of this policy is that the majority of row crop production in Saskatchewan, Manitoba and Alberta is currently incentivized to plant hard red winter wheat or canola. Now, these incentives may shift.

"The much bigger issue over the next few years is, will Canadian growers demand and receive wider options on what they can plant?" Smith says.

It won’t happen overnight, but if Canada taps into hard red spring wheat varieties, the country could significantly affect the market – resulting in an influx of as much as 20% more red spring wheat, he says. That could jeopardize the premium market that hard red spring wheat farmers in states like Montana and North Dakota currently enjoy.

"I’m more concerned with some of the long-term implications of the demise of the CWB than the short-term grain-handling issues," Smith says.

Other areas to watch. North Dakota State University crops economist Frayne Olson says Canada is just one of several wheat-growing regions to monitor.

"The world wheat market is very liquid," he says. "There are a lot of buyers and a lot of sellers. Because of that, the market factors can be more complex than corn or soybeans."

Besides Canada, another area Olson continues to monitor is the Black Sea production region, which is comprised of Russia, Ukraine and Kazakhstan. This region grows types of wheat that competes with U.S. hard red winter wheat and spring wheat in the world market.

Three years ago, the Black Sea enacted an export ban that drove U.S. grain prices artificially high, Olson says.

"We had a price rally going on during harvest, which rarely happens," he recalls.

Then, in 2011, the region enjoyed a big crop, and the export ban was lifted. Last year, lower production increased the risk of a renewed ban, but it never came to fruition. This year, production was once again lower than anticipated — Olson says they don’t have the stocks to export, ban or no.

Another area of interest is Australia, which is a moderate competitor for U.S. spring wheat. Buyers from Asia in particular buy U.S. spring wheat and blend it with Australian wheat to get the quality they need.

That country’s production is down slightly — but that’s coming off a record-breaking 2011-12 season. Olson says the Aussie market hasn’t thrown any curveballs this year.

Olson says he enjoys tackling the complexities that affect U.S. wheat market, which can act schizophrenically at times.

"The biggest problem U.S. wheat has had is it kind of has a bipolar personality," he says. "It really doesn’t know what to do."

Wheat prices usually echo corn prices. Higher prices since 2010 have actually caused as many challenges as opportunities because U.S. grain was priced at a premium in the world market. That’s a sticky situation for a country that exports 40% to 50% of its crop.

"All the major buyers went somewhere else," he says.

Olson is confident wheat prices are in a good spot right now – low enough to be competitive on the world stage but high enough to price itself out of the domestic feed market.

"We’re on pace with exports now for where we need to be," he says.

Sale Restrictions for Faller

North Dakota State University’s Research Foundation is reminding farmers that one of its premier varieties, Faller, remains illegal to sell in Canada unless sold through Seed Depot Corp., the sole and exclusive licensee and distributor of Faller in Canada. Because of its higher yield potential, NDSURF believes that some U.S. seedsmen and others have been approached by farmers or entities in Canada in an attempt to buy Faller seed for planting in Canada.

"U.S. seedsmen or other parties are in violation of NDSURF’s Plant Variety Protection rights if they sell or transfer seeds to any Canadian entity other than through Seed Depot Corp.," says Dale Zetocha, NDSURF executive director. "This includes seed or grain of any nature or classification that is exported into Canada and converted to seed after it crosses the border or seed that is mislabeled as another variety until after it crosses the border."

Zetocha says the NDSURF will prosecute any known infringement of its PVP rights.

"Anyone violating the export, import or unauthorized sale of Faller hard red spring wheat could face triple damages," he says. "Also, violators are subject to the collection of attorney fees, other costs and harvested material. The court could, upon request, order the infringer to immediately cease the growing and/or sale of all NDSURF-protected varieties."

Anyone who is approached to sell Faller seed into Canada by anyone other than a Seed Depot Corp. representative can call John Smith at (204) 825-2000.